Will Japan’s quake be the costliest ever?

As rescue teams and government officials sort through the rubble caused by Friday’s earthquake and tsunami, we’re getting a clearer picture of the damage done by the catastrophe – and it doesn’t look good. Perhaps Japanese Prime Minister summed up the situation best when he said the quake presented the worst crisis for Japan since World War II. Thankfully, even as the death toll mounts, this quake won’t be the costliest in terms of human life. However, it could well be the costliest in terms of money.

AIR Worldwide estimates that insured property losses from the quake could reach as much as $35 billion. That’s a very preliminary projection, of course, but if it is anywhere near the final figure, Friday’s quake in Japan would easily be the costliest on record, potentially dwarfing the losses incurred from the 1994 California earthquake, and making it the second-most expensive natural disaster ever, after Hurricane Katrina. Another modeling firm, Eqecat, estimates total losses to homes, factories, infrastructure and other property caused by the quake and tsunami could exceed $100 billion.

On top of that, we’re also facing losses to industrial production. The good news on this front is that the area worst hit by the quake and tsunami is not a major center of manufacturing in the Japanese economy. Industrial areas tend to lie further south, in the area around Nagoya, for example. I was in Sendai a year ago reporting a story for TIME, and one of the big concerns of government officials and policymakers there was that Miyagi prefecture had generally missed out on the industrial boom Japan experienced in the 1960s and 1970s. But that doesn’t mean there are no factories there. Many major Japanese firms have operations in the area, as do their suppliers. A Toyota subsidiary, in fact, just opened an auto assembly plant in Miyagi earlier this year. Beyond the immediate impact on Miyagi and the surrounding area, production in Japan has been disrupted by damage to highways, snarled transport and power outages, created in part by the crisis at quake-hit nuclear reactors. Those power shortages could continue for days, even weeks, as officials could ration the reduced amount of available electricity around the country.

As a result, the disaster has caused factory shutdowns across Japanese industry, from paper mills to beer breweries to chip foundries. Toyota has suspended all auto production through March 16, according to a company spokesman. The impact could be felt globally. Production disruptions in Japan could cause shortages of key components, especially in the consumer electronics industry, since the economy is a core part of the world’s manufacturing supply network.

Those losses of output are also leading to concern among economists about the state of the overall economy. Japan’s GDP already shrank in the final quarter of 2010, and now the blow to production from the quake could cause the economy to contract in the current or perhaps subsequent quarters. So the quake might send Japan back into recession. (However, GDP will eventually see a nice boost from reconstruction spending, meaning any downturn could be muted or temporary.)

Jitters about the quake’s economic fallout are rising. Japan’s benchmark stock index plunged more than 6% on Monday. (Other markets in the region were mixed.) The Bank of Japan stepped in quickly on Monday to try to calm investors, injecting a staggering $183 billion into the financial sector, its largest one-day operation ever, and easing monetary conditions further by expanding an existing asset-buying program. But until we get a full picture of the extent of the damage, and life begins to get back to normal in Japan, investors are likely to remain nervous, and for good reason.